Auditor General Michael Ferguson said the federal government’s plans to bypass internal financial controls in the event of Phoenix emergencies increase the risk of errors and unreliable payroll costs when he audits the government’s books.

Ferguson, who was not consulted about the government’s decision to seek a blanket authorization from departments on bypassing routine financial approvals, said the move will make his yearly audit of $23 billion in payroll even more difficult.

Ferguson, who audits the government’s annual financial statements, gave the 2017 Public Accounts a clean opinion, but he flagged that internal controls were so unreliable that he had to change the way pay expenses were audited.

He said poor internal controls and errors were made in “in every step of the pay process” which have left thousands of public servants underpaid, overpaid or not paid at all.

At that time, Ferguson said pay expenses had so many errors that his office couldn’t rely on internal controls around the new pay processes created by Phoenix.

He said the big concern about the latest plan to bypass controls during Phoenix emergencies creates a “higher level of risk,” which will take even more time and effort to audit the government’s payroll expenses.

“This means that in the course of our audit of the government’s payroll expenses we have to assume a higher level of risk. That is part of the reason why it now takes us more time and efforts to audit the government’s payroll expenses,” he said in an email.

Treasury Board is asking all departments to sign blanket approvals allowing it to bypass federal financial rules in the event of Phoenix emergencies that could leave large numbers of Canada’s public servants unpaid.

Departments have been asked to seek their ministers’ permission to surrender or ‘delegate’ their financial authority to approve salary spending to Public Services and Procurement Canada (PSPC) so pay can be rushed through during an emergency.

The government has already had three such emergencies, including what was called a near catastrophe this past Christmas. PSPC sought a rush authorization then to make payroll fixes on time and departments were told it was a one-time request.

Treasury Board now wants a standing or open-ended approval that would remain in force until March 2021. The need to extend beyond that date will be re-assessed then.

The approvals at the centre of the request are provisions in the Financial Administration Act (FAA), the government’s bible for financial management and accountability. Under the FAA, only mangers with delegated authorities for sections 33 and 34 can approve transactions to trigger payments.

The rationale is to avert an emergency, whether caused by a error, power outage or technical glitch, that could result in a “significant risk that employees will not receive their pay” and there is not enough time to approve transactions through the normal approval route.

Ferguson’s office said Comptroller-General Roch Huppe informed him “some time ago” that the government could change the way sections 33 and 34 are being executed. Ferguson, however, was not part of management’s decision to proceed with the changes.

As the Phoenix crisis drags on, some argue the quality and reliability of the financial information is becoming a significant and worrisome issue — especially for the departments with human resource system connected to Phoenix where data is often corrupted in the back and forth between systems.

Dany Richard, president of the Canadian Association of Financial Officers (ACFO), said many accountants in departments are at their wits’ end. They find lots of errors when trying to reconcile salary expenses, but most are dismissed as “Phoenix” errors and never get investigated properly.

He said most officers can’t reconcile what was spent on payroll with what should have been spent. Many departments are in the situation where up to 85 per cent of transactions have some kind of errors.

“By default, any anomaly found is flagged as someone probably got Phoenixed, but some are not and finding those anomalies is like finding a needle in a haystack. We don’t have time to go through every transaction,” said Richard.

The number of financial officers working in government mushroomed in the years after the sponsorship scandal when the government increased oversight with more internal controls.

Today, Richard said the financial officers can’t keep up with the workload created by Phoenix gaffes and new quarterly updates they are expected to do on overpayments and underpayments to help the government track the magnitude of the problem.

“Mistakes in entering pay information, delays in processing changes, and multiple adjusting entries that, in some cases, created additional errors, all contributed to the overpayments and underpayments in employee pay,” Ferguson said in his 2017 audit observations.

Ferguson also concluded the overpayments and underpayments offset each other and didn’t have a material impact on the books. He said the government also made year-end “accounting adjustments” to improve the accuracy of pay expenses.

“These adjustments changed only the reported pay expenses in the consolidated financial statements; they did not correct the underlying problems nor did they correct the pay errors that continue to affect individual employees,” he wrote.

The government has various financial, technology and manual controls but Ferguson found weaknesses or not enough information to determine if controls were working during his last audit. The only way to get around that was to change the way it audited and take a much larger sample than ever previously examined.

Ferguson’s audit examined 18,000 pay transactions made during the year to a sample of employees in 48 departments and found 62 per cent of employees were improperly paid at least once during the year.

Last year, Ferguson’s audit team spent 60,000 auditing the government financial statements. About 11,000 of those hours were spent auditing pay expenses — that’s 10,000 more hours than before Phoenix.

Although Ferguson gave a clean opinion on the government’s books, he warned MPs in his observations that the audit he was forced to conduct was expensive, “labour intensive” and would have to continue until Phoenix is fixed and “we can rely on controls.”

It’s unclear how many more hours Ferguson would have to spend with a the government’s plan for a blanket authorization — which has been used with thousands of files when invoked in three emergencies so far.